AIM Disciplinary Notice: public censure and fine for breach of the AIM Rules

AIM Disciplinary Notice: public censure and fine for breach of the AIM Rules

29 Nov 2017

On 5 March 2015, the Company announced the proposed acquisition of the D&M Group, based in Queensland, Australia, which constituted a reverse takeover for the purposes of Rule 14 of the AIM Rules. The Company simultaneously published an admission document in respect of the enlarged entity as required by Rule 14 and convened a general meeting to obtain shareholder approval of the acquisition. In the announcement, the Company disclosed that it had entered into a debt facility with an Australian finance provider to fund the acquisition, with funding anticipated to be available for draw down following the general meeting.

By 19 March 2015, certain directors of the Company were aware of concerns that the debt funding may not be forthcoming and that the Company was unable to contact or get a response from the provider. The Company's finance director was not informed of these difficulties and the nominated adviser, although advised that funding may be delayed due to the need to release existing security over assets of the enlarged group, was not informed either. The relevant directors did, however, discuss the position with other advisers in Australia.

On 27 March 2015 the Company announced that the final condition for completion would soon be met (being the release of the earlier security) and that completion of the acquisition was expected on or around a date in April. The Company failed, however, to caveat this with details of the financing uncertainties. When the finance director became aware of the funding problems, the nominated adviser was immediately informed and this resulted in suspension of trading in the Company's shares on 8 April 2015 pending clarification of the funding position. Ultimately, the funding was never provided and the acquisition did not proceed. On restoration of trading in June 2015 the Company's share price fell by over 26%.

AIM Rules breached

The Exchange determined that the Company had breached:

AIM Rule 10 (Principles of disclosure) by failing to include in its notifications the fact that it was aware of difficulties in obtaining funds from the entity that was financing the acquisition

AIM Rule 31 (AIM company and directors' responsibility for compliance) by failing to keep its nominated adviser informed of the difficulties it was having in obtaining these funds and failing to seek the nominated adviser's advice on the AIM Rules

AIM Rule 22 (Provision and disclosure of information) as the then board did not fully co-operate with the Exchange during its investigation. The board in place at the time of the events was, save for the finance director, subsequently replaced with a new board

The Exchange's conclusions and reasons for the disciplinary action against the company

Notwithstanding the changes to the board and confirmation from the nominated adviser that it was satisfied that changes had been made at the Company to address the concerns raised by the censure, the Company bears corporate responsibility for its actions and must ensure that its directors are individually and collectively responsible for compliance with the AIM Rules (Rule 31)

An AIM company has a primary obligation to ensure that the information it notifies to the market is not misleading, false or deceptive and does not omit anything likely to affect the import of such information, in compliance with AIM Rule 10. Notifications must provide a clear understanding of the matters being disclosed and be properly caveated where necessary. The 27th March notification was misleading given that, although the Company knew that the funding was uncertain, the notification implied that completion of the acquisition was solely contingent on the release of the existing security

It was unacceptable that the nominated adviser was not advised of the problem.The censure underlines the importance of keeping the nominated adviser informed of developments and seeking its advice on the AIM company's notification obligations (as required by AIM Rule 31). Discussing matters with other advisers is not a substitute for seeking advice from the nominated adviser, which is authorised by the Exchange to advise and guide companies on their responsibilities under the AIM Rules; its role is therefore different to that of other advisers

Whilst under investigation an AIM company is required to use due skill and care to ensure that information provided to the Exchange is correct, complete and not misleading (Note to Rule 22). Failure to do so is considered by the Exchange to be a serious matter.

Disciplinary action

The AIM Disciplinary Committee approved a Consent Order for a public censure and a fine of £125,000, which the Exchange considered to be the appropriate sanction under AIM Rule 42 (Disciplinary action against an AIM company), given the seriousness of the breaches of the AIM Rules. The fine was discounted to £85,000 for early settlement. When determining the appropriate level of fine the Exchange took into account all the circumstances, including the new board's recognition of the materiality of the breaches.

The Exchange emphasised that where there is actionable evidence, the Exchange will bring to account companies that fail to meet the standards of disclosure required of AIM companies.

We use cookies to enhance your experience of our website. By using our website you consent to the use of cookies. For more information about cookies, please use the "Cookies" link at the bottom of the page at any time or click here.

"Womble Bond Dickinson", the “law firm” or the "firm" refers to the network of member firms of Womble Bond Dickinson (International) Limited, consisting of Womble Bond Dickinson (UK) LLP and Womble Bond Dickinson (US) LLP. Each of Womble Bond Dickinson (UK) LLP and Womble Bond Dickinson (US) LLP is a separate legal entity operating as an independent law firm. Womble Bond Dickinson (International) Limited does not practise law. Please see www.womblebonddickinson.com/legal-notices for further details.

You are switching to the United States

This selection will switch the website from presenting information primarily about the United Kingdom to information about the United States. If you would like to switch back, you may use location selection options at the top of the page.

Please make the United States my default location.

Contact

Although we would like to hear from you, we cannot represent you until we know that doing so will not create a conflict of interest. Also, we cannot treat unsolicited information as confidential. Accordingly, please do not send us any information about any legal matter until we authorize you to do so. To initiate a possible representation, please call one of our lawyers or staff members.

By clicking the “ACCEPT” button, you agree that we may review any information you transmit to us. You recognize that, even if you submit information that you consider confidential in an effort to retain us, our review of that information will not create an obligation on us to keep it confidential and will not preclude us from representing another client directly adverse to you, even in a matter where that information could and will be used against you.

Please click the “ACCEPT” button if you understand and accept the foregoing statement and wish to proceed.